Jack A. Goldstone, George Mason University

Well, that worked out so well!   After reaching agreement on a debt ceiling increase and subsequent spending cuts designed to reassure the credit markets and get the economy on track by relieving uncertainty, the Dow went into a headlong dive, triggering declines in markets all around the world.  The U.S. lost it’s AAA rating as well.  What went wrong?

A lot of space in the blogosphere has gone to discussing economics, with Paul Krugman among others suggesting that Congress needs a refresher course in Economics 101. But I’d say the problem lies elsewhere. As my distinguished George Mason U. colleague and Nobel Laureate, James Buchanan, has shown, politicians’ first priority is not following rational economic analysis. Rather, they will do whatever it takes to pursue their own goals, meaning win elections, even if that involves pandering to vocal minorities rather than serving the broader interests of their diverse constituencies.

I think perhaps President Obama needs a refresher course in Negotiation 101. Democrats claim that they can hardly negotiate with folks who are irrational, or with a gun to their heads, or with the economy held hostage. Balderdash – appearing irrational, using threats, and holding things the other side values hostage are all tried and true negotiating techniques, ways to gain leverage and victory in tough negotiations. Republicans – even Tea Party politicians – do have interests, they are rational, and they can be bargained with. But that requires finding their weaknesses and meeting hard bargaining with tough-minded and ruthless negotiating strategies of your own, not expecting them to ‘be reasonable’ or to accept compromise for its own sake. Compromise is what you get only when both sides make their toughest arguments and have to find a solution in the middle, not when one side tries to appear reasonable and willing to compromise while the other side does not. After all, if your opponent has a gun to your head, you can cave in and give them what they want – or you can call in someone on your side with a rifle.

Here is my favorite example of tough Presidential negotiating with a recalcitrant Congress: In 1908, Teddy Roosevelt wanted to send the U.S. Navy around the world in a demonstration of naval might, to show that America had become major power. But some thought this was a waste of money, and Senator Eugene Hale of Maine threatened to withhold money for the cruise. “The undeterred Roosevelt replied in his typically brusque and forthright manner that he already had sufficient funding to get the fleet to the Pacific, and if the Congress wanted the fleet to return to the Atlantic it would have to authorize the additional funding” (from Michael Crawford, The Cruise of the Great White Fleet, US. Govt. Printing Office 2008, p. 37). That is a fine example of turning a weakness (lack of sufficient funds to complete the voyage) into bargaining leverage!

What could Obama have done, faced with the Tea Party demands to drastically cut spending in order to approve an increase in the debt ceiling? Here are some ideas that I hope were considered:

Take the gun out of their hands. The full faith and credit of the United States was never threatened by a lack of revenues, international confidence, or other real-world problems. It was a wholly artificial crisis, created by Congress’ own passage of a law to limit US borrowing. There is a good chance that if tested such a law would be ruled unconstitutional, or at least in conflict with other laws passed by Congress — the fiscal year’s authorization and appropriation bills — which required the U.S. government to send checks to the military, social security recipients and others. Even if Obama didn’t want to take it on his own authority to say he would pay the US’s bills no matter what Congress said, he could have argued that he would have to go to the courts for an injunction to continue US government borrowing and spending while the courts adjudicated which of Congress’s flatly contradictory laws – the authorization and appropriation bills or the borrowing cap – had priority.

Take hostages of your own. Obama could have gone on TV and clearly explained to the American people that Congress had already voted this year to spend money on military salaries, social security, medicare, road construction, and other items, but they had also voted to keep taxes low and so there was not enough money on hand right now to pay all of those items on which they had voted. SO: If now, after passing those laws, Congress was going to block the government from borrowing enough money to make those payments, Obama would have no choice but to do the following: First, pay all the interest on the outstanding government debt and all the Medicare and Medicaid payments to cover those who need their medicines and other medical care; next, pay all social security recipients and military personnel one-half of what they were due; and finally, send a letter to all social security recipients and military personnel explaining that Republicans in Congress were preventing them getting from getting full payment by blocking a clean bill that would simply give the government the authority to make the payments that Congress had already authorized, and that they would get the other half of their pay as soon as they convinced the Republicans in Congress to pass a clean bill allowing that payment. That is, pull a Roosevelt.

Get someone on your side with a rifle. Before the crisis got too extreme, Obama should have had a closed door meeting with Congressional Republican leaders and made it clear that if he did not get a clean bill to raise the debt ceiling, then he would have to start preparing for the crisis by stopping government spending beforehand on his own to save money for critical needs, and that he would start by first stopping all Federal payments to states with Republican governors and senators, and stopping work on federally funded projects in Congressional districts with Republican representatives. After all, if Republicans were so sure that government spending was bad and wanted it reduced, they could take the first step by giving up all federal funds to their states and districts! Obama could have challenged Republicans who didn’t like this to sue him — and then explain to their supporters why they were going to court to force the government to SPEND money. Lest you think that is not an appropriate negotiating tactic, let me remind you that this is exactly what the Republicans just did to get their way in the FAA bill. That is, when Democrats would not cave in to Republican demands regarding labor conditions for FAA workers, the Republicans in the House sent them an FAA funding bill that cut out all money for rural airports in the home states of Senate Democratic leaders Harry Reid, Jay Rockefeller and others, to force them to negotiate.

Using any or all of these tactics might have gotten Obama a clean debt-ceiling extension through 2012, without the capitulations on taxes and spending that he had to accept.

Obama made two major mistakes in these negotiations. First, overconfidence – he let the crisis develop because he thought that HE could use the crisis to force Republicans into a “Grand Bargain” on taxing and spending. Here is the reality: If your opponents are more determined than you are, do NOT let a crisis develop, as you will be forced to cave first. Second, Obama believed that the ‘reasonable’ middle is always the natural solution. That is just not true – the reasonable middle has to be fought for just as hard as any extreme. Obama seemed to think that if he presented a reasonable, middling course, combining major spending cuts with modest tax increases, it would somehow naturally gather widespread support. But that never happened because Obama never made a powerful enough case to overcome the Republican position that all taxes and spending are bad. Obama forgot the Basic Rule of Negotiating – you don’t get what you deserve, you get what you negotiate.

Let’s hope that Obama has time for some refresher lessons before the next round of negotiations over budget reductions that will take place with the Committee of 12 this Fall.